Silver, Gold and Economic Exchange

The Bitcoin Millionaire Syndrome

Bitcoin has a lot of potential since it is a fascinating work around of traditional fiat currencies. Bitcoins are needed to be all over the world. They are a revolutionary way to increase personal freedom, economic freedom and prosperity for everyone. If Bitcoin use continues to spread, given the fixed supply there is a reasonable chance that someday the Bitcoin I own may be worth a respectable fortune. A lot of the people who bought Bitcoin early on are probably of the same opinion. But that attitude is putting a strangle hold on the adoption of Bitcoin.

The Bitcoin Millionaire Syndrome is where individuals are hoarding Bitcoin due to its potential value, therefore it is keeping Bitcoins out of the hands of people who need them as a medium of exchange. In economic terms the velocity of 50 to 70 percent of the Bitcoins in circulation is practically zero (http://eprint.iacr.org/2012). If Bitcoin were to be adopted by even a fraction of the world as medium of exchange then each of the 11 million Bitcoins in existence would be much more valuable than they are now. Therefore early adopters expect to be better off than the late adopters.

It is up for debate as to whether Bitcoins are backed by the value of the computing power and electricity used to create them. What is not up for debate is that Bitcoins represent a praxeological and real way to exchange and account for value. Those properties are needed universally by individuals for their day-to-day economic calculations. Those properties in fiat currencies today are all hugely distorted by inflation from government spending/printing and from monetary expansion as a result of fractional reserve banking.

I worry tho that my hoarding and lack of participation in the Bitcoin economy is accomplishing the opposite of what I like about Bitcoin’s potential. From now I will be looking for ways to participate in the economy. That may mean selling half of my Bitcoin or maybe loaning them to an individual so the Bitcoin circulates but eventually come back into my possession. Whatever action I take it will be better than just sitting back and waiting for Bitcoin’s widespread adoption.

Cha Ching and until next week (hopefully),

Alex

picture is from http://transhumanity.net/articles/entry/bitcoin-a-means-for-redistribution-of-wealth

Meta

Well, you are assuming the velocity of other currencies is bigger than with Bitcoin. However, I don’t think there is any data about that. How many dollars have a velocity of zero?

Early adopters are at an advantage because otherwise Bitcoin would struggle with adoption. Selling more coins or moving them does not increase the Bitcoin potential – one can still convert the same value into Bitcoin and use it, they would be just getting a different amount of coins.

I think the main issue here is whether people are willing to spend their Bitcoins on goods and services that accept Bitcoin. That is more beneficial than just selling your coins, as it supports Bitcoin merchants and helps to grow the Bitcoin-powered economy.

Hording is NOT bad. All the bitcoins not in circulation simply increase the value of those in circulation. Increased value creates free PR. There is always bitcoins for sale to newcommers due to the fact bitcoins can be split into very small units.

“individuals are hoarding Bitcoin due to its potential value, therefore it is keeping Bitcoins out of the hands of people who need them as a medium of exchange” This is a non sequitur. Bitcoins are readily available to anyone who wants them via hundreds of bitcoin exchanges around the world. You can even buy them at Walmart!

bitcoin is divisible by 8 decimals meaning if it is globally adopted it will have to compete with velocity if 90% are just holding bitcoins waiting to cash out when all 21 million have been mined. imagining it hitting 21 mill minted and then crashing would appear to be a pump and dump ponzi. its also going to have to compete with other upcoming virutal currencies that are possibly inpsired or jelous of bitcoins success. I would keep my eye out. 100k per bitcoin is possible in the QE environment but i dont know if thats the dollar going down or fiat money going down or not. if we hit $1,000 by the end of 2013 I would hold till 21 mill has been reached but dont listen to me i’m just another clueless jack ass.